Frequently Asked Questions (FAQs) on the
Asset Management Green Paper

Is the Commission going to legislate in the field of asset management?

No. The Commission believes that it needs to build on the existing framework.
The new rules have been in place only for a few months. Market participants are
still busy coping with the changes entailed by UCITS III. The Commission
believes, though, that the new UCITS framework can be made more effective and
can lead to missed opportunities. It has a clear short-term and medium-term
strategy to remedy this. But one should remember that the ideas behind the UCITS
framework are thirty years old. The Commission believes it is also time to
launch a debate on the sustainability of this original vision in the long term.
Avoid regulatory fatigue, make the best of what we have, and think ahead: the
Commission believes this to be the most appropriate agenda.

Asset management has been recently been the subject of extensive
discussion. What is new in the Green paper?

True, some of the ideas of the Green paper have already been discussed last
year within the asset management expert group. However, there was no discussion
of solutions and no sense of how to move forward. The Commission believes that
the Green Paper brings the debate to the next stage and offers a realistic
appraisal of problems and possible solutions.

How have the consumer's interests been taken into account?

Consumer protection is at the very heart of the UCITS framework. In preparing
the Green Paper the Commission considered consumers’ views. It discussed
its proposed priorities with consumer representatives in the FINUSE network and
shareholders representatives, as well as with retail fund promoters.

The UCITS Directive establishes several levels of investor protection. These
include investment limits, safekeeping of investors’ assets and risk
management controls. Are the right protections in place? Can consumers have
confidence in the investment fund sector? The Commission believes it needs to
explore this further. Moreover, one of the core objectives of the Green Paper is
to revisit industry practices, notably in the field of distribution. This is
clearly in the interest of consumers.

Does the Commission intend to regulate hedge funds?

The Commission’s view is that there is currently no compelling case for
EU legislation on hedge funds. It believes this is not needed to support the
development of the industry cross-border. There is no clear evidence of
cross-border retail investor risk. There is no demand from market participants
for EU coordination to remove barriers to market access.

The Green Paper invites responses from all stakeholders on these issues. It
also envisages the creation of an industry working group on alternative
investment strategies. The group will give further consideration to the
existence of legal, regulatory or administrative barriers hindering the
efficient organisation of the business on a cross-border basis. It will also
reflect on likely trends in terms of product development and offers to
investors.

All sorts of complex high-risk products are being sold as UCITS. Does the
Commission intend to address this issue?

The Commission is aware that more complex and sophisticated products are
coming on stream under the UCITS umbrella. The work undertaken by the Committee
of European Securities Regulators (CESR) and the Commission on the clarification
of definitions on eligible assets is therefore very important. It will bring
some certainty as to whether certain innovative products such as derivatives on
hedge fund indices are eligible for UCITS.

In addition, the Commission has identified the way UCITS are distributed and
promoted to retail investors as an area for further clarification. It needs to
be ensured that investors understand the main risks of the products they are
going to invest in. Clarifying the obligations of fund distributors as regards
duties of care and information they owe their clients is an important measure
for achieving this aim. It will help to maintain the high level of investor
protection associated with UCITS.

If the working groups proposed in the Green paper are established, what
will be their composition?

The first priority will be to gather technical expertise. The Commission will
seek to bring together in those groups individuals with the relevant experience
and skills. It must also get a broad perspective from across the sector and the
EU. The conclusions of these groups are likely to provide both qualitative and
quantitative evidence which will assist the Commission in future policy
developments in these areas.

Does the Commission envisage turning the UCITS-Directive into a "true"
Lamfalussy-Directive?

Some stakeholders advocate the recasting of the UCITS Directive along the
lines of the Lamfalussy approach. This, however, will not be a cosmetic
exercise. This would invite choices on the principles to be retained at
framework level and on the scope and content of decisions to be determined
through comitology. Thus, the Commission will seize the occasion to restructure
the Directive following the Lamfalussy approach only if a consensus emerges on
the need for legislative changes to its substance.

How will the Commission meet its objective of better regulation in the
UCITS area?

Where legislative actions may come under consideration, they will be
subjected to:

extensive ex-ante consultation: including public consultations (e.g. in the
asset management working group report and on this Green Paper) and regular/ad
hoc meetings with national authorities, industry associations and other market
participants. The Commission will hold an open hearing on the Green Paper in
Brussels on October 13th. Registration for this event will be available online
in the coming weeks.

regulatory impact assessment and cost-benefit analysis: the Commission will
not only ensure that any EU level intervention is targeted towards a specific
market/regulatory failure, but also ensure that Community action is the most
efficient way to deal with the problem. In this respect the Commission is
launching two studies on the cost structure of the investment fund industry and
on the current trends and risks affecting the asset management sector.
Commission services will also continue internal research on the various topics
highlighted in the Green Paper requiring particular